Friday Rant: A Prescription for Spend Management in State Government (Part 1)

As I prepare to pay thousands of dollars more in personal and corporate tax in 2011 because Illinois, my home state and place of business, is incapable of balancing its budget, let alone facing any spending cuts (See previous posts here and here), it's become clear to me that state governments need to take an entirely fresh look at a range of Spend Management areas which could lead to not only less expensive government, but better government as well. The travesty of Illinois has to be the must disgusting in US government spending history -- the state has run up massive budget deficits due almost entirely to the welfare pension state it has created for retired workers and its inability to cut costs anywhere else. As a result, the personal and business income tax rates are rising by 2/3rds and the politicians in Springfield, our capital, have agreed only to freeze spending at an additional 2% per year. There have been no talks of spending cuts, let alone better procurement.

My prescription for Illinois and other states in our predicament is about as straightforward as it gets. Focus on transparency first. Earlier this week, I had a briefing from public sector-focused spend analysis provider Spikes Cavell and they shared with me how some of their public sector clients are publishing spending records to constituents for like items and services, and even benchmarking and comparing across states, municipalities and cities. By starting with transparency and putting spending data -- especially comparative spending data -- in the hands of residents, state and local governments will force themselves to be held accountable for the types of decision they're making on a policy level and the true costs of execution on the public servant level. I reckon the sanitizing effect of daylight on spending records as well as the ability to aggregate and pool spend to negotiate better contracts (let alone going through formal strategic sourcing exercises) might as well be worth at least 5% savings off of non-labor spend.

The next ingredient in this mix must be automation and purchasing controls. Government-focused transactional procurement tools that include catalog management, requisitioning, PO dispatch, invoicing and payment from vendors such as SciQuest, Coupa, Proactis and Oracle should be a no-brainer, but they're not. In the private sector, there is significant evidence that P2P capabilities not only reduce maverick spending (i.e., spend with unauthorized or un-contracted suppliers) but also reduce spending in general, as employees realize they're being monitored and watched. Moreover, more advanced implementations can and should include capabilities that validate invoice accuracy (against both PO and contract terms) for both simple and complex (e.g., telecom) categories alike. In most state environments, I would expect savings from these systems to be roughly 3-6% overall based on a variety of factors (and potentially higher, the more complex categories are factored into the active P2P management equation).

Stay tuned for the next rant in this fiscally responsible series next week as we turn our attention to a key Spend Management area that states must focus on including: services procurement including pension/labor and make/buy decisions for specific capabilities, vendor management and contract management.

- Jason Busch

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